Law: Income Tax Ordinance, 1979

Section: 80B(1),2(20)(e),50(6A)

Income Tax Ordinance (XXXI of 1979)]......Ss. 80 B(1), 2(20)(e) & 50(6A) Tax on income of certain persons from dividend and Bank profits etc. Dividend Loan -Deduction of tax at source Assessee was Director as well as share-holder of a private limited company Assessee obtained loan from the company Assessing Officer invoked the provisions of S.2(20)(e) of the Income Tax Ordinance, 1979 and treated the same as "dividend" after deducting accumulated profit from such loan, which was added to the income of the assessee First Appellate Authority confirmed the application of S.2(20)(e) of the Income Tax Ordinance, 1979 but directed the Assessing Officer to treat this income as a separate block under S.80B of the Income Tax Ordinance, 1979 -Validity Reading of the provisions of S.50(6A) of the Income Tax Ordinance, 1979 together with the meaning of word "dividend" given in S.2(20)(e) of the Income Tax Ordinance, 1979, showed that payment by a private company of a sum by way of advance or loan to a shareholder would fall within the definition of dividend and would thus attract the provisions of S.50(6A) of the Income Tax Ordinance, 1979 Any payment by way of a loan or advance by a private company to its shareholders to the extent of its accumulated profit would be treated as dividend and liable to deduction of tax Dividend on which tax was deductible under S.50(6A) of the Income Tax Ordinance, 1979 would be taxable under the provisions of 80B(1) of the Income Tax Ordinance, 1979 Order of the Appellate Authority was maintained by the Appellate Tribunal and appeal of the Department was dismissed. ORDER INAM ELLAHI SHEIKH (CHAIRMAN). This departmental appeal is directed against an order dated 30 12 1996 recorded by the learned Commissioner of Income tax (Appeals), Zone II, Karachi against an Income tax assessee on the following ground: "(i) The section 80 B covers a situation where tax is deductible under section 50(6A). (ii) In the matter where loan, is advanced for the directors, it is deemed as dividend which in actual is not, therefore, this situation is not covered by 80 B. " 2. The relevant facts in brief are that the assessee earned income as a Director of…

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